They hosted a backyard party with food and an open bar, invited the neighbors and professional contractors—in case potential buyers had questions about remodeling. To top it off, they’re offering their own ,000 rebate on the 5,000 home.

Three years ago, such cash enticements were the norm—and cash was only the beginning. Sellers regularly tried to lure prospective buyers with free cars, big-screen TVs and stainless appliances at closing. But after nearly a year and a half of a government tax credit program, sellers have scaled back on marketing gimmicks and buyer incentives, largely in an effort to limit their losses.

Meanwhile, new rules aimed at reducing the risk of mortgage defaults have made many once-common incentives illegal, so many sellers are simply resorting to one of the oldest tricks in the book: dropping the price.

Aaron Dickinson of Edina Realty says that buyers today have access to more information about the market than ever before, so competitive pricing is the best way to attract attention. “At the end of the day, buyers aren’t stupid,” he said. “Gimmicks don’t work well when buyers have so many avenues to be educated about what’s for sale and what has sold and for what price.”

In addition, buyers are worried about the economy and their job and have focused on getting the best price—and the lowest house payment—rather than a free perk. Indeed, many buyers are making decisions based on the assumption that someone in their family might lose their job, said Stephanie Gruver, a sales agent with Keller Williams Integrity Lakes in the Minneapolis-St. Paul, Minn., area. “They’re buying on one income rather than two, and they’re buying within their means,” she said.

Perhaps the biggest reason for the decline in seller incentives comes from the mortgage industry itself. In an effort to reduce defaults, the government has cracked down on all forms of seller incentives. New rules are designed to eliminate any exchange of cash or property before and after a closing that might affect how much equity a buyer has in their new home. That’s an about-face from a time when underwriting standards were much less stringent and cash-back signing bonuses and other perks were a common way to help push buyers over the fence. The goal now is to maximize a buyer’s investment in the hopes that they’ll be less likely to walk away from their obligation.

Current government loan guidelines limit seller contributions—usually in the form of closing costs—on conventional mortgages to 3% of the purchase price; FHA loans allow a 6% contribution, but that’s going to be reduced to 3% during the next few months.

Lenders say that losses are mounting on mortgages in which appraisers failed to discover—or sellers failed to disclose—incentives that were never deducted from the sale price of the house. That’s led to improperly priced loans and inaccuracies in valuations. Already Fannie Mae and Freddie Mac are asking lenders to repurchase billions of dollars in improperly underwritten mortgages, including some in which enticements weren’t properly disclosed.

The government tax credit was a particularly good deal for cash-strapped buyers and sellers because it wasn’t tied to the value of the house and it arrived in the form of a check with few restrictions on how it could be spent.

To buyers spoiled by such an offer, that makes the prospect of pre-recession incentives seem a little less enticing.

“Incentives from the seller don’t replace the incentives from the federal government,” Dickinson said. “Oftentimes, it’s easier to do a price reduction than offer a rebate.”

That was Coldwell Banker’s thinking when, after the expiration of the government’s ,000 tax credit, in June it asked its sellers to offer prospective buyers a 3% discount for purchases made by the end of the month. Participation was limited, but sellers are likely weary of still-lower prices.

But party-giver Foley, a professional marketer, attributes the pullback on incentives to an all-out surrender. “Everybody has had a hard time selling,” he said. “It doesn’t mean you stop. It’s almost as if people, including sellers and Realtors, have given up. They’ve lost faith in what they knew.” The bottom line, he said, is that sellers and their agents need to get creative and have more fun.

An evening storm rolled through Minneapolis the night of the party, which Case and Foley put together with the full support of their real estate agent. They promoted it with just about every form of social media, from Facebook to Twitter, and a few phone calls to local media. But in the hour and a half that a reporter attended the two-hour party, no prospective buyers showed. The 30 or so guests were largely friends, neighbors or the media.

Foley said several prospective buyers showed up eventually, but added his goal wasn’t to reach a high number of prospective buyers, but rather find the one who wants to buy the house.

“I’m not saying that we’re going to reap success and sell our house, but as a marketer, my chances of succeeding are greatly enhanced by putting forth some sort of imagination and effort,” he said. “Some sellers are literally giving away thousands of dollars because they haven’t given sellers a reason to buy their house. If we can market water for a gallon, don’t tell me you can’t find a reason to make your house more charming or exciting for someone.”

Sales without incentives:
In lieu of attention-grabbing incentives, here’s what works best today:
-Price it right. Buyers have access to lots of data, and they’ll know if your house is too expensive.
-Offer to pay some of the buyer’s closing costs.
-Maximize exposure. Saturate the Internet and all forms of social media with your listing.
-Use great photos, not good ones. Make sure your house makes a great first impression.
-Make it sing. Listing information must be complete and well-written.
-Curb appeal matters. Spend a little money on flowers, new plants and fresh paint.
-Inside, your house should look fresh, so make sure the paint, carpeting, light fixtures and appliances are updated and clean.
-De-clutter. Eliminate one-third to two-thirds of your stuff; hire a stager.
-Network. Sales come together because brains understand homes better than computers.
-Be patient. Statistics say that it takes 21 showings, not including open-house traffic, to sell a house.

(c) 2010, Star Tribune (Minneapolis)

Distributed by McClatchy-Tribune Information Services.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

Copyright© 2010 RISMedia, The Leader in Real Estate Information Systems and Real Estate News. All Rights Reserved. This material may not be republished without permission from RISMedia.

All in 350 square feet.

Freeman’s coffee table is also his dining table. His desk is three steps from his sitting room and three paces from his stove. “Everything is within three steps of the next thing,” said Freeman, a graphic designer.

Southern California, meet the Manhattan-sized mini-apartment. In a region known for its sprawl, diminutive dwellings are finding a toehold among renters who couldn’t otherwise afford to live in choice neighborhoods.

Freeman’s apartment may be smaller than many suburban master bedrooms, but rents in his Olympic Studios complex are comparatively small too: ,110 a month at the low end, and the beach is just a mile away.

Prospective tenants need to sign up for a waiting list: The 165-unit Olympic Studios has been filled since it opened in late 2008. The developers are now building a similar complex nearby, and a pint-sized apartment project is also planned for the Palms neighborhood of West Los Angeles.

The units are about the same size as a large recreational vehicle and have the same design imperative: Fit as many features as possible into a small space, but don’t make it claustrophobic.

“It’s like a Rubik’s Cube,” said Jim Andersen of NMS Properties, which built Olympic Studios. “It’s a geometry problem.”

Freeman’s living areas—kitchen, desk area and TV nook—flow from one space to the next, unimpeded by doors or hallways. The only interior door is to the bathroom. He climbs 14 carpeted steps to a landing big enough for his double bed and a closet. A wide ledge over his stove and refrigerator holds some of his paintings.

“It feels like more than it is,” Freeman said. “It’s just right for me.” When Freeman’s son visits, he sleeps on the fold-out couch. “He’s got his own little space with dedicated shelves for personal stuff,” Freeman said.

Still, there are challenges. When Freeman hosted a rehearsal for his ukulele band, the nine members took up the length of his apartment, from front door to window. The backup singers had to perch on the stairs. “It was very full,” Freeman said. The close quarters made it “kind of fun,” he said, although he hasn’t hosted another practice since.

Freeman also had to pare down his clothes and other possessions before moving in. Residents can rent a storage cabinet in the underground garage for to 0 a month, but he didn’t feel the need. “Getting rid of stuff I didn’t need helped me untether myself,” he said. “It was a gift, rather than a punishment.”

There wasn’t room to keep Freeman’s collection of 12 guitars in a closet, much less on stands on the floor like he used do, so he hung them on the walls. “It turns out I like guitars hanging up like artwork instead of hidden away in a closet,” he said. “I dig it.”

Nontraditional families like Freeman’s were in the minds of the Olympic’s architects. “Families are not two and a half kids and a dog anymore,” said Wade Killefer of Killefer Flammang Architects. Creating the smallest possible unit was a competitive game in the Santa Monica firm, Killefer said, with his fellow architects challenging each other to shave off a foot here or there on the design. They started by allotting space for the necessities.

“You’ve got to have a couch, a stove, a bed, a place for two people to eat, a desk, a closet and storage space,” Killefer said. “Then figure out where your dresser is going to go.”

Their presumption was that most tenants would be single, or a parent with one child, with a smattering of couples.

Mini-dwellings are at the frontier of a downsizing movement that’s embraced by environmentalists, and that challenges decades of a bigger-is-better trend in American homes.

While Olympic Studios is an extreme case, American dwellings are getting smaller. The median size of a U.S. home, which jumped from 900 square feet in the 1950s to 2,277 in 2007, has edged down to 2,161, Census Bureau figures show.

The smaller units make most sense in places like Santa Monica, where the cost of land is high and there is an abundance of jobs and commerce. That means people want to live there, but may not be able to afford the rents for traditional apartments.

For developers, small is beautiful because they can build more units per square foot of land. A 165-unit complex would normally not be possible on the site of Olympic Studios, but developers won permission from Santa Monica city officials in part by agreeing to set aside 20% of the units for people whose annual incomes are at or below the local median of ,000.

Those residents pay ,110 a month. Others pay ,388, which is still about 30% cheaper than other new apartments in Santa Monica. “As the price of housing rises faster than incomes for many people, you will see this being a small but steady and growing part of the market,” said John McIlwain, a senior fellow at the Urban Land Institute think tank in Washington, D.C. “How do you make units affordable to people in the middle-income work force if they want to live in the city?”

One answer, McIlwain said, is to make them small but with upscale designs and finishes such as granite countertops and stainless steel appliances. That offers a competitive advantage in Santa Monica, where much of the apartment stock is several decades old and sometimes not well maintained.

“I was like, wow, everything is new and working,” said Deja Prem, a massage therapist who shares an Olympic Studios unit with her daughter, “I can stay off the freeway and walk to the grocery store.” Prem’s unit is Spartan. There is no television and no clutter. A small couch in front of an electric fireplace folds out to make her daughter’s bed. Upstairs, Prem sits on her bed to work on a screenplay on her computer. She often takes her meals there, too.

One of the few signs of personal possessions is a shelf full of shoes by the front door. “Why lug around a lot of stuff?” Prem said. “I just like expansive spaces, because it opens up my imagination.”

Being in the middle of it all has its down sides though. Olympic Studios sits in a busy light manufacturing district served by heavy trucks and traversed by thousands of commuters.

“There is street noise when the windows are open,” making it harder to concentrate on his school work from Santa Monica College, said resident Ori Dvir, who was attracted to Olympic Studios because he can walk to classes.

He sold most of his belongings when he moved from Chicago about six months ago, so fitting into his unit wasn’t difficult, he said. “I like the idea of scaling down,” said Dvir. “I prefer small places. They are easier to clean and maintain.”

(c) 2010, Los Angeles Times.

Distributed by McClatchy-Tribune Information Services.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

Copyright© 2010 RISMedia, The Leader in Real Estate Information Systems and Real Estate News. All Rights Reserved. This material may not be republished without permission from RISMedia.